The Boyar Value Group just released our latest quarterly letter to clients.
Please find an excerpt of the letter below:
Do Higher Interest Rates Mean That Stocks Need to Decline?
Pundits see higher bond yields as a sign that equity valuations need to further compress (after all, higher bond yields are competition for stocks), but a look at the historical record contradicts that notion. According to Bespoke Investment Group, the yield on the investment-grade bond index is ~5.6%, right around the 35-year median yield, and at the same time the P/E of the S&P 500 is close to its historical average, which Michael Santoli sees as a sign that “‘average’ equity valuations are not far out of whack.” Approximately 7 months ago, investors were willing to accept that same 5.6% yield they are currently receiving for investment-grade fixed income for lower-rated junk bonds. Times sure have changed! As Santoli also points out, “the most extreme overvaluation of large-cap stocks and wildest speculation in no-profit upstarts occurred at a time when Treasuries yielded 5-6% in the late-’90s. Appetites and crowd psychology drive markets in the shorter-term, not math.”
Are We in the Run-up to a Small Cap Rally?
Small cap companies are particularly attractive, in our opinion, and have been hit hard during the selloff, with the S&P 600 (an index consisting of smaller capitalization companies) declining 17% YTD through October 25. Not only are they historically cheap, trading at just 11.5x expected earnings (below their 20-year average of 15.4x and the S&P 500’s 16.5x), but they are significantly more insulated from the negative effects of a strong U.S. dollar than multinational companies that sell more of their goods/services overseas. According to the Wall Street Journal, components of the S&P 600 generate just 20% of their sales abroad versus 40% for the larger-cap S&P 500.
This information is not a recommendation, or an offer to sell, or a solicitation of any offer to buy, an interest in any security, including an interest in any investment vehicle managed or advised by Boyar Value Group (“Boyar”) or its affiliates. Past performance does not guarantee future results. This material is as of the date indicated, is not complete, and is subject to change. Additional information is available upon request. No representation is made with respect to the accuracy, completeness or timeliness of information and Boyar assumes no obligation to update or revise such information. Boyar Asset Management Inc. is an investment adviser registered with the Securities and Exchange Commission. Registration of an Investment Advisor does not imply any level of skill or training. A copy of current Form ADV Part 2A is available upon request or at www.advisorinfo.sec.gov. Please contact Boyar Asset Management Inc. at (212) 995-8300 with any questions